Bank of America said Pearson shares aren’t worth the same blows Chegg took, even as the threat from artificial intelligence in education technology grows. Analyst David Amira upgraded the education technology stock twice to buy from the underperforming. He raised his target price to 895 pounds from 885 pounds, which now indicates an uptick of 18.7% from Tuesday’s close. “The reading to Pearson seems very harsh,” he said in a note to clients on Wednesday. “We are not ruling out the potential threat of generative AI, but we do consider the risk/reward attractive right now.” The London-based analyst upgraded British stocks. US investors can purchase shares through ADR which are traded under the ticker PSO. Listed US stocks rose more than 9% in premarket trading after losing 14.6% on Tuesday. The stock is down 17% since the start of the year. Amira said the company provided a “relatively confident” update to the first quarter, noting in particular its 6% organic growth, the tripling of subscribers to its Pearson+ platform annually, and the share buybacks. The update came within days of Chegg’s first-quarter report, which led to a sell-off on Tuesday after management said ChatGPT was hurting its business. But Amira said Pearson is in a different boat than Chegg because the reasons customers use it are different, with Chegg focusing more on homework help and Pearson on textbooks. He also noted that Pearson provided positive commentary about the recording’s outlook. Since Pearson is a diversified, highly educated company that makes up about a quarter of sales, the use of AI could have varying effects, he said. But the analyst notes that AI can make creating open education resources easier, which in turn will reduce the need for students to go through Pearson. In the aftermath of the sell-off, the risk-reward ratio now looks more attractive, Amira said. He explained that the price-to-earnings multiple should remain lower than peers in the media sector even if higher education-related earnings fell by 20%, as is the case with Chegg’s agreed estimate. Amira reiterated her neutral rating on Chegg in his note, but lowered her price target from $20 to $11. His target would indicate a 21.1% uptick from where the stock ended Tuesday. But the target is still a 37.5% discount as shares finished Monday’s session, showing the impact of Tuesday’s stumble on share value. US listed PSO CHGG 5D mounts from Pearson vs. Chegg – CNBC’s Michael Blum contributed to this report.
This stock has been threatened by an emerging AI, but now Bank of America says it’s an outrageous buy